20120531final_order_no_32552.pdf

Office of the Secretary
Service Date
May 31.2012
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )CASE NO.IPC-E-12-17
AUTHORITY TO IMPLEMENT POWER )
COST ADJUSTMENT (PCA)RATES FOR )
ELECTRIC SERVICE FROM JUNE 1,2012 )ORDER NO.32552
THROUGH MAY 31,2013 )
On April 13,2012,Idaho Power Company filed its annual power cost adjustment
(PCA)Application.Since 1993,the PCA mechanism has permitted Idaho Power to adjust its
PCA rates upward or downward to reflect the Company’s annual “power supply costs.”Because
about half of the Company’s generation is from hydropower facilities,Idaho Power’s actual cost
of providing electricity (its power supply cost)varies from year to year depending on changes in
Snake River streamfiows,the amount of purchased power,fuel costs,the market price of power,
and other factors.’The annual PCA surcharge or credit is combined with the Company’s “base
rates”to produce a customer’s overall energy rate.
This year Idaho Power calculates that its annual power costs have increased above
the normalized PCA rates.The Company estimates that the existing PCA rates should be
increased by about $43 million,or an average increase in the existing PCA rates of
approximately 5.10%.The Company proposes to offset its proposed PCA rate increase with
revenue credits (about $27.1 million)from its Revenue Sharing Case (IPC-E-12-13).When the
two cases are combined,the Company proposes that the overall average increase in PCA billed
rates would be 1.71%for tariff customers and between 6.12%and 7.62%for the four special
contract customers.The Company proposes that the PCA rates become effective on June 1,
2012.
On April 25,2012,the Commission issued Order No.32533 requesting public
comment on the PCA Application.The Commission’s Notice of Modified Procedure requested
that written comments be filed no later than May 15,2012.In response to the Commission’s
Notice,comments were filed by several customers,Snake River Alliance (SRA),and
Commission Staff.The Company filed timely reply comments.As set out in greater detail
For example,the revenue from the sale of sulfur dioxide (S02)allowances.
ORDER NO.32552 1
below,the Commission approves Idaho Power’s PCA Application with new PCA rates effective
June 1,2012.
THE PCA MECHANISM
The annual PCA mechanism is comprised of three major components.First,PCA
rates are calculated to reflect projected power costs for the coming PCA year (June 1,2012 to
May 31,2013)using the Company’s most recent “Operating Plan.”This method replaced the
previous methodology that was based solely on streamfiow forecast and a regression formula
derived from rate case data.Order No.30715.In years of abundant snowpacks and
streamfiows,the Company’s power supply costs are usually lower because of the availability of
relatively inexpensive hydro-generation.Conversely,when streamfiows or snowpacks are low,
Idaho Power must rely increasingly upon its other thermal generating resources and purchased
power from the regional market.The Company’s other thermal generating resources (coal and
gas plants)and purchased power are typically more costly than the Company’s hydro-generation.
The first component of the PCA is the forecasted or projected power costs including:
fuel costs;transmission costs for purchased power;PURPA contract expenses;surplus sales
revenues;Hoku first block take-or-pay revenues;and revenues from the sale of renewable energy
credits (RECs)and sulfur dioxide allowances.Under the PCA mechanism,the Company may
recover 95%of the difference between the non-PURPA projected power costs and the approved
base power cost.Order No.30715.The Company is allowed to recover 100%of the costs of its
PURPA contracts.In last year’s rate case,the Commission determined that the Company should
recover 100%of its demand-side management (DSM)incentive and conservation costs as part of
the PCA.Order No.32426 at 3.The Commission set the base for DSM costs as $11,252,265.
Second,because the PCA includes forecasted costs,the preceding year’s forecasted
costs are “trued-up”based upon the actual costs incurred during the prior year.Third,
“reconciliation”2 of the previous year’s true-up component under which any overrecovered or
underrecovered balance from the second component is credited to or collected from this year’s
PCA rate.This third component is designed to ensure the Company recovers the actual approved
costs.Consequently,ratepayers will pay for the actual amount of power sold by Idaho Power to
meet native load requirements —no more or no less.Order No.29334 at 4.Thus,ratepayers
2 This reconciliation component has often been referred to in the past as the “true-up of the true-up.”
ORDER NO.32552
receive a rate credit when power costs are low,but are assessed a rate surcharge when power
costs are high.
THE PCA APPLICATION
A.The PCA Components
This year’s PCA Application includes the forecast of projected power costs based
upon the most recent Operating Plan;a true-up of last year’s forecasted costs to reflect actual
costs;and reconciliation of the 201 1-2012 PCA year true-up.The Company calculates that the
adjusted PCA forecast amount is about $70.29 million more than the PCA base amount approved
in Order Nos.31042 and 32426.
1.Forecast.The PCA power forecast component is comprised of three elements.
First,the cost of the non-PURPA expenses of $69,778 (shared at 95%)is 0.0005 cents per kWh.
Application at 4;Wright Dir.at 11.Second,the Operating Plan’s quantification of PURPA
expenses (tracked at 100%)is $66,738,659 greater than the $62.8 million quantified in the power
supply expenses approved in Order No.31042.Id.This results in a rate for PURPA expenses of
0.4830 cents per kWh.Id.Third,the Operating Plan estimates demand response incentive
payments above the base of $3,470,945 (tracked at 100%).Dividing this last amount by the
jurisdictional firm sales of 13,172,433 MWh results in a rate of 0.0264 cents per kWh.Id.
Consequently,the projected forecast component of the PCA is 0.5099 cents per kWh (.0005
cents +.4830 cents +.0264 cents).Application at 4-5;Wright Dir.at 11-12.
2.The True-up.Idaho Power reports that it overrecovered last year’s forecast costs
and actual costs in the amount of $17,646,658 (a credit to ratepayers).Id.at 5;Wright Dir.at 16.
This amount is divided by the projected jurisdictional sales to arrive at a credit to customers of
(0.1340)cents per kWh.
3.Reconciliation.The Company states that last year it overcollected the PCA
deferral balance by $5,165,169.Application at 5;Wright Dir.at 17.Dividing this amount by
the projected jurisdictional sales results in a PCA reconciliation credit to customers of (0.0392)
cents per kWh.Id
Combining the three components —the projected power costs rate of 0.5099 cents,
the true-up credit of (0.1340)cents and the reconciliation credit of (0.03 92)cents —results in a
uniform PCA rate for the 2012-2013 PCA year of 0.3367 cents per kWh.
ORDER NO.32552 3
4.Other This year’s PCA Application includes two other adjustments
to the projected power cost component (in addition to the DSM adjustment mentioned above).
First.the Company adjusted its projected power costs to reflect recent changes in the Idaho
Power-Hoku special contract.Earlier this sear.the Commission adopted chanies to this special
contract which reduced Hoku’s monthly minimum (take-or-paY)charge to S800.000 per month.
The Company also reduced Hokis load to zero from January 1.2012 through June 30.2013.
Wright Dir.at 8:Order Nos.32486 and 32525.Second.the Companvs Operating Plan for the
PCA year includes the Company’s new Langley Gulch power plant with a projected on-line date
of July 1,2012.Wright Dir.at 8-9:Case No.IPC-L-12-14.
B.The PA Rate Proposal
Idaho Power has proposed to implement the PCA rates on June 1,2012.The
Company asserts each customer class will receive a different percentage increase.When the
proposed PCA rate is combined with the sharing rates,the table below shows the proposed
combined rates for the major customer classes:
Combined PCA and Revenue Sharing Rates
Customer Group Current Proposed Percentage
(Schedules)PCA Rate Combined Rate Change
Residential (1)U289c/k\h 0793c kV h 62%—
Small Commercial (7)j .0539c/kWh .0094 c/k Wh (.43%)
Large Commercial (9)O040c’kVh 1492c k\kh 266°o
lndustnal(19)(0l37)c/k\kh I l986’k\\h 503%
lnigation(24)01 14c/kWh l295/kWh 185%
Source:Atch.2:Atch,3.p.2:Exh.2
The PCA rates for Idaho Powe?s four special-contract customers would also increase.Under the
Company’s proposal,the PCA rate for all the special-contract customers would be 0.3367 cents
per kWh.Ja In addition,each special contract will receive a monthly credit during the PCA
year in the following amounts:Micron$46.803:Simplot$l8.362:DOE (INL)—$22.906:and
Hoku S7,685.Atch.2.p.3.
TilE COMNIENTS
Initial comments were filed by several customers.SRA.and Staff.The eight public
comments from customers opposed the proposed rate increase.These customers argued that the
increase was unwarranted fbr low-income customers and those on fixed incomes.Two
customers objected to the proposed rate increase arguing that the Companvs officers are paid too
ORDF/RNO.32552 4
much.Finally,one customer commented that his small business should not have to pay tbr wind
power.while another customer said the Company seemed to he “waging an all out war against
PURPA proects’
Staff.Staff analyzed each of the three separate PCA components and their
supporting calculations.Based upon this review.Staff confirmed that the Company correctly
recorded its annual power supply costs and correctly calculated the three separate PCA rate
components.Staff calculated that the uniform PC\rate is 0.3367 cents per kWh (comprised of
the forecast 0.5099 cents,minus the true—up 0.1340 cents,minus the reconciliation 0.0392 cents).
Staff agreed that combining the rate credits ($27.1 million)from the Revenue Sharing case,
results in the combined PCA!Revenue Sharing rates shown in Compan Exhibit 2.
Staff also offered two observations to improve the PCA methodology and process.
First.Staff expressed concern that the Company does not use actual energy sales to calculate
revenue from the previous year’s forecast rate hut uses normalized energy data.Although
normalized data has been used for many years,Staff stated that it intends to discuss with the
Company the use of actual energy sales data and the approved true-up rate to calculate true-up
revenue lbr future PCA cases.Comments at 8-9.
Second,Staff was critical of the Company’s Customer Notice in this case for two
reasons.Before the Company decided to issue “supplemental’Customer Notices.there would
have been more than 100.000 customers who would not have received their bill stuffer notices
until after the comment due date.Staff agreed with the Companys decision to issue the
supplemental notices and suggested that future notices in fast-tracked cases he timely issued so
that customers may receive proper notice.In addition,Staff asserted that the Customer Notice
was confusing not because it dwelled on PURPA costs,but because it urged customers to
comment in a wholly separate case.GNR-E-l 1-03.
2.SRA.The Alliance was concerned that “Idaho Power is using this PCA [easel,
among other venues,as an arena to press the arguments it is attempting to make in ‘the generic
Pt IRPA case.GNR-E-1 1-03.”Comments at 1.While SRA does not disagree that an increase in
wind QF expenses is’laving a role in this PCA:’SRA urged the Commission to reserve judgment
on”the burden wind is placing on the Company and its customers’Id.at 2.In particular.SRA
suggested that the Commission “sithhold judgment on this application until a more detailed
ORDER NO.32552 5
accounting of existing and expected wind contracts is furnished’so PURPA issues can be
reviewed in greater detail in the generic docket.
SRA suggested that until the generic casris resolved and more certainty is reached’it
does not understand how Idaho Power can project future costs of PURPA contracts given the
facts that sometommission-approved’QF projects may not be built Id Snake River declared
that it believes
the companjs use of its required Customer Notice for [this]PCA [case]veers
well beyond simply informing customers of the nature of the PCA and drifts
instead into a frontal assault on the compan9s obligation under PURPA and
into advocacy for the separate GNR-E-1 1-03 [case].
Id.at 3.
The Alliance also asserted that the majority of recent Company filings involving
multiple rate adjustments makes it difficult for customers ‘to keep track of so many cases that
may have an impact on their rates.let alone understanding the nature of each casC Id at 3-4.
SRA complained that when customers receive a Customer Notice about the PCA rate increasing
5.1%nd that the culprit is wind power’the results are predictable in that customers will object
to wind resources.Snake River pointed out that customers may lose sight of the fact that
Langley Gulch represents an increase in base rates of 7.1%as compared to the annual PCA
increase of 5.1%.it could be argued that the current and cumulative impacts of the Langley
Gulch plant may be far greater than those associated with QF wind energy purchases.Yet Idaho
Power customers are not showered with company fliers regarding the rate impacts of Langley
Gulch as they are with the companys arguments in the PURPA case and wind QFs in particularr
Id at4.
3.Idaho Power Reply.In its reply comments,the Company disagreed with
comments regarding the propriety of including information about the impact of PURPA expenses
in the PCA case.Reply at 2.The Company pointed out that the testimony of its witness Scott
Wright discloses that PURPA-related expenses accounted for 95%of the $70.3 million PCA
revenue increase.The Company asserted that it is critical to inform customers of PURPRs
financial impact on rates and the existence of another docket evaluating PURPA matters
generally to allow customers to fully participate in the regulatory processr Id at 3.The
Company was concerned that if it did not bring the generic PURPA case to the attention of
customers,that it would ‘be negatively viewed as limiting customer participation or as a
ORDER NO.32552 6
purposeful omission?kL Moreover,the Company observed that customers will not receive a
separate notification of the generic PURPA case.
The Company insisted that the ‘brief referencd’to the PURPA docket in the PCA
Customer Notice “was not done in a matter that would cause confusion;it was related to a
component of the proposed PCA rate change and clearly set forth to promote customer
participation rather than to hinder IC Id at 4.
Idaho Power also commented on SRAs suggestion that the Commission “withhold
judgment on this application:’Id.The Company does not believe that a more detailed analysis of
PIJRPA wind contracts will provide any additional information that Staff has not already
audited.Consequently,the Company requests that the Commission approve proposed tariff
Schedule No.55 to be effective June 1,2012.
DISCUSSION AND FINDINGS
After reviewing the PCA Application and the comments filed in this case,the
Commission finds it is reasonable to grant Idaho Powets Application to increase its PCA rates
for the 2012-2013 PCA year.We find that the combination of the three PCA components results
in a uniform PCA rate of .3367 cents per kWh.We note that a substantial part of the annual
PCA revenue increase is caused by the unavoidable need to recover the costs of more PURPA
contracts.Consequently,we find that the current PCA rates are insufficient for the Company to
recover its annual power costs.idaho Code §61-502.
We further find that is reasonable to offset the PCA rate increase with revenues from
the Companjs Revenue Sharing case (IPC-E-12-l3).The $27.1 million in revenue sharing fimds
will offset the increase attributable to the PCA rates.When the PCA rates are combined with the
revenue sharing funds,we find that the combined PCA rates in Schedule 55 are fair,just and
reasonable.Id.
We also encourage Staff to discuss with the Company Staffs concerns about using
normalized data versus actual data in the true-up component of the PCA mechanism.These
discussions should take place well before the filing ofnext yeats PCA application.
We share Staffs concern about the timeliness ofthe Customer Notice in this case.To
allow customers the opportunity to meaningfully participate in our proceedings.they must be
provided with timely notice of proposed rate increases before the effective date of such
increases.As provided in our Rule 125.02.‘mnual cost adjustment cases that result in an
ORDER NO.32552 7
increase in rates remain subject to the requirements of advance notice contained in this rule.”
IDAPA 3 1.01.01.125.02 (emphasis added).The purpose of Rule 125 is to allow customers an
opportunity to participate in our cases in a meaningful maimer.If the Company had adhered to
the schedule for mailing the notice in this case more than 100,000 customers would not have
received notice about this case until after the comment deadline had closed.Although the
Company subsequently mailed timely “supplemental”customer notices to these customers,the
Company should ensure that its future filings provide timely notice to customers in the first
instance.
Given the comments,we also reviewed the content of the PCA Customer Notice.
While we recognize that recovery of PURPA contract costs plays a significant role in this year’s
PCA increase,suggesting in the PCA notice that customers comment in the different,generic
PURPA case (GNR-E-1 1-03)is confusing.The Commission expects the Company’s Customer
Notice to inform customers that they may comment about the Company’s application in the
proceeding in which the application is being reviewed.The Company should review the
requirements of Rule 125 to ensure that its customer notices comply with the criteria set out in
our rule.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power Company to
increase its Power Cost Adjustment (PCA)rates effective June 1,2012 through May 31,2013,is
approved as set forth in this Order.The uniform PCA rate shall be 0.3367 cents per kWh for all
customer classes and the four special-contract customers.The PCA revenue increase shall be
combined and offset with the credits from the Revenue Sharing case.
IT IS FURTHER ORDERED that the combined PCA and revenue sharing rates
contained in tariff Schedule No.55 shall be effective for service on June 1,2012.
IT IS FURTHER ORDERED that the Company conform its practices and the content
of individual customer notices to the requirements of Rule 125.IDAPA 31.01.01.125.
THIS IS A FINAL ORDER.Any person interested in this Order (or in issues finally
decided by this Order)or in interlocutory Orders previously issued in this Case No.IPC-E-12-17
may petition for reconsideration within twenty-one (21)days of the service date of this Order
with regard to any matter decided in this Order or in interlocutory Orders previously issued in
ORDER NO.32552 8
this case.Within seven (7)days after any person has petitioned for reconsideration,any other
person may cross-petition for reconsideration.See Idaho Code §6 1-626.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this 1 /
day of May 2012.
I
MACK A.REDFORD,COMMISSIONER
MARSHA H.SMITH,COMMISSIONER
ATTEST:
/
Jean D Jewelt”
‘ommission Secretary
bls/O:IPC-E-12-1 7dh2
ORDER NO.32552 9